Rich Dad's Who Took My Money? : Why Slow Investors Lose and Fast Money Wins!
By Robert T. Kiyosaki, Sharon L. Lechter C.P.A.
In December of 2002, a local newspaper in Phoenix, Arizona, ran an article on my book Rich Dad's Prophecy, which had just been released in October of the same year. I was surprised to find the article fair and balanced. The reason I was surprised is because many financial journalists did not have many nice things to say about this book.
Although it was a fair and balanced article, the journalist closed with one offhand remark that disturbed me. What disturbed me was his comment about my 39 percent return on my last investment. I felt his comment insinuated that I was either lying or exaggerating about my returns.
Now, most of us dislike people who brag or exaggerate. I know I don't care for such people. My problem with his remark was that I was not bragging or exaggerating. In fact, I was doing exactly the opposite-I was actually understating my return. In other words, my return was not just a paper return. My cash-on-cash return was measured in real money in my pocket, and the return was much higher than 39 percent.
I allowed his comment to bother me for several days. Finally, I called and asked for an appointment so I could set the record straight. I told him that I did not expect him to write anything more about me or publish a retraction. All I asked was that I go to his office with my accountant, show him my records, and explain how the 39 percent was achieved. His reply was cordial and we set an appointment.
After my accountant and I explained to him how the 39 percent was achieved and why it was actually understated, his only comment was, "Well, the average investor cannot do what you do."
My reply to that comment was, "I never said they could."
He then said, "What you do is too risky."
My response to that statement was, "In the last few years, millions of investors have lost trillions of dollars, much of it from stocks and mutual funds, which you recommend. Many people who lost money investing for the long term in mutual funds will never be able to retire. Isn't that risky?"
"Well, that was because there was a lot of corporate corruption," he replied defensively.
"That is partially true. But how much of the losses are due to bad advice, advice from financial planners, stockbrokers, and financial journalists? If investing for the long term in mutual funds is such a great idea, why did so many people lose so much money?"
"I stand by my advice," was his reply. "I still say that investing for the long term and diversifying in a portfolio of mutual funds is the best plan for the average investor."
"I agree," I replied. "Your advice is the best advice for the average investor ... but not for me."
My accountant, Tom, then chimed in and said, "With a slight shift in focus and the use of different assets, the average investor could achieve much higher returns with much less risk. Rather than sit and watch the market jump up and down, listening to financial gurus trying to predict the next hot stock to pick, using Robert's rich dad's plan, an investor doesn't have to panic each time the market drops, or worry about which sector is going to go up next. Not only does the investor achieve much higher returns, with less money and less risk, money comes in automatically, like magic. In fact, I often call this strategy of investing magic money."
The idea of a 39 percent return-and now magic money-was a little too much for such a short meeting with this journalist. With the mention of "magic money," the meeting was over.
As I said, the journalist was cordial and open-minded. A few weeks later, he wrote another article about me, even though I did not ask for it. While the article was accurate, he did not mention how I achieved high returns or anything about magic money.
The most important thing I am grateful to him for is the inspiration to write this book ... a book that is not for the average investor.
FAQ (Frequently Asked Questions)
After the meeting with the journalist, I decided to write this book. I decided it was time to explain rich dad's formula for turning a small investment into an ultra-high return. This book would also offer me an opportunity to answer some frequently asked questions ... questions I often avoid answering ... questions such as:
"I have $10,000. What should I invest it in?"
"What type of investment do you recommend?"
"How do I get started?"
The main reason I have hesitated answering such questions is because the truthful answer is, "It depends on you. What I would do is often different from what you should do."
Another reason I hesitate answering such questions is because when I have answered such questions, explaining to people exactly what I do and how I achieve high returns with less money and less risk, their responses are often:
"You can't do that here."
"I can't afford it."
"Isn't there an easier way?"
Why So Many People Lose
In my opinion, one of the reasons millions of people lost trillions of dollars between the years 2000 and 2003 is because they were looking for easy answers as to where to invest their money... and there were many people ready to supply the easy answers... easy answers such as:
"Invest for the long term and diversify."
"Cut up your credit cards and get out of debt."
This book is not written for people who want easy answers. If you like the overly simplified financial answers most people are willing to accept, then this book is probably not for you. My answers may seem too hard or too difficult for most people.
This book is written for those who want to take more control over their money and make a lot more money with their money. If this is of interest to you, then please read on.
The Worst Way to Get Rich
While the journalist was correct in saying that his advice was great for the average investor, the facts are that his advice is one of the hardest ways to get rich. People with a job who put money into a retirement plan such as a 401 (k) filled with mutual funds are taking the slow bus through life-and it is a bus with a worn-out engine, which means it does not go fast and does not ever reach the peaks of financial returns. It is also a bus that has bad brakes, which makes going down hills frightening.
While putting money into a retirement plan for the long term might be a good idea for average investors, to me, it is a slow, risky, inefficient, highly taxed way to invest.
There Are Better Investments
When asked the question "What should I invest in?" I will show the following chart if I have it handy.
While showing the chart, I add, "There are three different asset classes, which are businesses, real estate, and paper assets. The following compares two of the three assets. The chart compares real estate against investing in the S&P 500 index, which is what most average investors should invest in. I'll let the chart do the talking. I believe it shows the difference between mountain peaks and hills.
Explaining further I say, "A good simple investment is to put money into an S&P 500 index fund. For most mutual fund managers, the S&P 500 is their benchmark to beat; unfortunately, very few beat it."
That often brings up the question, "Why do you need a fund manager if few can beat the S&P? Why not just invest that money myself in the S&P?"
My reply is, "I ask the same question." Continuing, I say, "If you invest $10,000 in real estate, you actually increase the basis of your investment using 90 percent leverage, in this case $90,000 of your banker's money. In the years between 1992 and 2002, your $10,000 in the S&P 500 would have increased to $17,397 and your $10,000 along with your banker's money would have gone up to nearly $158,673."
After people look at the chart for a while, the next question I often hear from them is, "Why don't more people invest in real estate?"
My reply is, "Because to invest in real estate, you have to be a better investor. Investing successfully in real estate not only requires more financial skills, investing in real estate is much more capital-intensive and management-intensive. Getting into paper assets such as mutual funds is much easier, less expensive, and requires very little management, which is why so many more people invest in them."
I point out, however, that the returns on the chart for real estate is a national average, and averages can be deceiving. In reality, returns on real estate were much higher in certain parts of the country and much lower in others. I explain: "The S&P 500 is an international market, while real estate is a local market. That means if you are a savvy real estate investor, you can often achieve even higher returns in real estate. Your $10,000 in the S&P 500 would achieve the same returns as everyone else received . . . while your $10,000 in real estate, during the same period, could be much higher than $158,673 or much lower. If you are a horrible real estate investor and property manager, you could lose the entire $10,000 you invested and possibly even more. If you are not good at real estate acquisition and management, you would be better off investing in the S&P 500. Success in real estate depends upon you as the investor. Success in the S&P depends upon the S&P 500 companies.